Selling Higher Education Is Much

Sleazier Than Selling Used Cars

Confessions of a former college admissions official: My job left

me feeling sleazy at times.
Product pricing always comes with a little fudge room.
Many refer to it as markup. This is just a given in the
world of sales and retail. That wiggle room allows sales
reps the ability to offer one time deals, which serve as
an effective call-to-action when closing the deal.
by Jay Stooksberry-Mar 1, 2017

( March 1, 2017, Boston, Sri Lanka Guardian) In a previous

life, I worked in sales. But not just your everyday, run-of-the-mill
brand of sales: I worked in a sleazy industry that championed
predatory lending practices and distorted the pricing of its
lackluster product, which often sent my clients spiraling down a
rabbit hole of debt. And to make matters worse, this entire
enterprise was buoyed by your tax dollars, soregardless of
macroeconomic patternsthis dubious marketplace remains
untouchable.
What was this ethically questionable industry? I worked in higher
education.
More specifically, I worked in college admissions and financial aid.
Many of my former admissions colleagues and peersall of whom
I consider to be good friendsprobably take offense to how I
characterized their livelihood, but I would have too back in the
day, when I was in the thick of it.
I took pride in my work, but it was taxing (pun unintended). I
spent nearly one-fourth of my year on the roadliving in hotels,
visiting high schools, attending college fairs, and pitching my
school as the place to be for unsuspecting 17-year-olds.
The gig was not only physically exhausting, but also morally. What
once seemed like an altruistic missionhelping the young people
of today become the leaders of tomorrowtransformed into a
much more realpolitik mindset. Slowly, I realized my job wasnt to
empower young people, but to get them and their parents to
commit to paying a very large sum of moneyeither by cash or
creditfor a little piece of paper that continues to diminish in
value.
I always considered myself to be on the up-and-up with the
families with whom I worked. I never lied to my students or their
families. I always represented my institution truthfully. I always
worked hard to get them the most bang for their buck.
However, it didnt matter how ethical I behaved as an admissions
counselor; the entire system is broken. Moral hazard has run
amok in the college system.
After a few years, I came to the unfortunate realization that I was
no better than a car salesman.
What follows are just a few reasons why car lots behave more
ethically than colleges and universities.
Markups
The markup on college tuition is astronomically higher than the
markup on a car.
Product pricing always comes with a little fudge room. Many refer
to it as markup. This is just a given in the world of sales and retail.
That wiggle room allows sales reps the ability to offer one time
deals, which serve as an effective call-to-action when closing the
deal.
In the higher-ed world, we refer to this wiggle room as
discounting. Discounting is the act of advertising an
astonishingly high rate of tuition, then bargaining with
scholarships, grants, loans, and other forms of financial aid until
the buyer finds a less painful price point that is still astonishingly
high, but still lower than before.
Sticker shock is a very real thing in the college admissions gig.
During my tenure in higher education, annual tuition at my
college was roughly $30,000 per year. But it didnt stop there:
cost of living also included $4,000 for room, $4,000 for board,
$750 for books, and $2,500 for other residual expenses
(insurance, vehicle maintenance, etc.) that families should include
in their annual budget. When it was all said and done, that annual
amount exceeded the $40,000 waterlineand this was only for
one year.
Plus, to make matters worse, tuition always rises as if it is
Newtons lesser-known fourth law of motion. On
average, colleges jack up tuition roughly 5 percent per year. The
board of trustees at my college, for example, was committed to
generous increases that didnt exceed two percent.
But dont worry, I told parents. Nobody ever pays the full
price. The discount rate varied for each student, but it was easy
to cut tuition in half through discounting so that it didnt seem as
bad.
A car dealers markup is roughly five percent above the
manufacturers suggested retail price (MSRP). For my college, that
markup was 115 percent! Sadly, this markup is average across all
of the higher-ed industry.
My college was not unique in this upcharge. The institutional
discount rate is universal in the higher-ed world and has steadily
increased nationwide. A 2015-2016 report by the National
Association of College and University Business Officers (NACUBO)
estimated that institutional discount rates peaked at 48.6 percent
that yeara trend they deemed to be not sustainable.
While some schools rely upon hefty endowments, the majority of
schools are classified as tuition-driven. The same NACUBO study
reported that only 10.8 percent of institutional grants were funded
by endowments in 2015-2016. This means that the dollars
received from incoming students are then recycled as
scholarships for future students.
American higher education is caught in a vicious cycle of robbing
Sophomore Peter to pay Freshmen Paul. But most families feel like
they are getting the deal of the century thanks to tuition
discounting.
Discounts
Car dealerships dont require a tax return to determine how much
to charge you for that car.
The discount rate is the result of the backward math that takes
place during financial aid season.
All families seeking financial aid must first complete a Free
Application for Federal Student Aid, also known as the FAFSA.
Hopefully, the irony of the word free isnt lost on everybody.
For those who have not had the pleasure of applying for
financial aid, consider it the equivalent of filling out your tax
return again. The FAFSA requires a detailed accounting of a
familys financial situation before any financial aid is allocated.
Once a FAFSA is completed, a familys estimated family
contribution (EFC) is determined. This is the end result of a
convoluted algorithm that determines a familys ability to pay for
college. Colleges and universities subtract the EFC from the cost
of attendance (tuition, room, board, books, etc.) to determine
need.
As many families will attest, the EFC overestimates a familys
ability to pay for college. It is a one-size-fits-all metric that does
not take into account regional cost of living, utilized outdated
budgeting estimates, makes many illogical assumptions, and
ignores situational expenses (for example, large medical bills).
There are some means to appeal and adjust mitigating
circumstances, but it does little to shave points off the EFC.
But name any other product or service that evaluates your ability
to pay before setting a price. You would hard-pressed to find other
examples that dont involve market distortions created by
government intrusion (e.g., healthcare, etc.), which conveniently
brings us to the next point.
Bailouts
The auto industry was only bailed out once; higher-ed makes it an
annual tradition.
Even one bailout is too much, in my opinion. The auto industry
was on the receiving end of a $79.7 billion handout, following the
financial crisis of 2008. Though monies were paid back, the
Congressional Budget Office estimates that the program still cost
taxpayers roughly $14 billion.
Meanwhile, the postsecondary market is bailed out every single
year. In 2014 alone,$133.8 billion in federal dollars were allocated
to over 5,000 postsecondary institutions to be used as financial
aid.
This aid, however, doesnt come in the form of a federal check
made out to a needy student. Colleges and universities are the
beneficiaries of these funds. Once enrollment counts for the
upcoming year are finalized, funds are issued to the colleges who
then, in turn, manage how they are distributed.
And this annual bailout is fueling rising costs. Studies have found
that federal funding directly contributes to inflated tuition pricing.
The Federal Reserve Bank of New York found that every dollar
awarded by Pell Grants resulted in a 55-cent increase in the
sticker price of college tuition for students. Anecdotally, the
board of trustees at my school waited for Pell Grant amounts to
be set before they officially set our schools tuition rate. This
residual effect, in conjunction with federal student aid, has
continued to inflate the price of tuition year after year.
Throwing more public money toward higher education has created
an opposite effect on the affordability of college. According to
inflation-adjusted figures, public investment in higher education is
ten times higher now than it was in 1960. For perspective, military
spending is only 1.8 times higher. Meanwhile, college tuition is
1,120 percent higher during roughly the same time period.
Consider the practice of federal financial aid as the equivalent of
TARP, the auto bailout, another form of corporate welfare doled
out to too large to fail institutions, who demand that taxpayers
foot the bill for their failing business models.
Potential Bubble?
Interestingly enough, total debt issued for both industries is
comparable. There is about$1.2 trillion of student loan debt and
about $1 trillion in auto loan debt.
Speculation of a possible auto loan bubble has surfaced as
delinquency rates started to spikespecifically in the subprime
markets that target borrowers with bad credit ratings or minimal
collateral. Default rates for these risky loans were highest14.4
percentin 2014.
Meanwhile, what was the rate of default for student loans in
2014? Again, it was comparable at a rate of 13.7 percent.
But that student loan debt bubble may be
intensifying. According to The Wall Street Journal, 43% of the
roughly 22 million Americans with federal student loans werent
making payments as of January 2016. Furthermore, 3.6 million
borrowers were in default on $56 billion in student debt.What
makes student debt troubling is the utter lack of underwriting.
College-seeking families can borrow tens of thousands of dollars
with virtually no due diligence performed by the lender (e.g., the
federal government playing loose and fast with your money).
There is no consideration of the applicants ability to repay the
loan, so its quite easy for a student to finance a degree with low
market value. There is no risk assessment of an applicants
potential for default, all while student loans traditionally have a
higher default rate in comparison to mortgages.
There is no collateral requirement, so loans are not secured and
recipients invest nothing up front. Also, recipients arent required
to make payments until after they have completed their degree or
drop below half-time status, so returns on investment are slow to
trickle back.
On top of all of this, it is virtually impossible to discharge your
student loans if you file for bankruptcy. Even with all of this,
student loans have managed to escape the label of predatory
lending.
Even if the bubble were to burst, think about who owns the paper
on all that debt? Keep in mind that the colleges and universities
already got paid. Everybody elsenamely, taxpayerswill foot
this bill if things went south. Those paying both income taxes and
student loans are already double dipping into this postsecondary
Ponzi scheme.
No End in Sight
If you have spent any amount of time on a college campus
recently, you have witnessed firsthand how lavish the college
experience has become: multi-million dollar educational
facilities, picturesque landscaping, posh residential suites, athletic
training facilities fit for Olympians, nationally-televised sports
programs (which, by and large, drain funds from educational
programs), and a reserve army of administrators who have
nothing to do with education whatsoever.
As one of those enlisted and overpriced pencil-pushers, I feared
that one day, the parents and students with whom I worked would
realize how sleazy the whole enterprise was.
But that day never came. Instead, most people seemed pleased
with my work, despite inspiring them to take out a second
mortgage to fill my universitys coffers.
Obviously, society at large ascribes a high degree of value to
higher education, granting immunity for some various obvious
and often times startlingshortcomings. Imagine a congregation
of churchgoers, who overlook the sins of their womanizing,
alcoholic, and BMW-driving pastor because of his vaunted
position. We know he is troubled, the congregation rebuts. But
he has done so much for the community.
If you couldnt tell, my job left me feeling sleazy at times.
All feelings of altruism that I once felt when I was first hired were
out the window after a year or so. And those feelings were
replaced with dystopian thoughts about what it would take for
higher education to reverse course.
During college fairs, I often daydreamed about the perfect circle
necessary to topple the higher education cartel. The only thing
that made sense was abolishing the Department of Education and
cutting off the ever-so-generous allowance that taxpayers have
doled out for nearly a half-century.
The task of reforming higher education is Herculean in scope
much bigger than the load little jaded admissions counselor me
could tackle. The best thing I could do was look for a more ethical
line of work, which I did. And, no, I didnt end up selling cars.
Jay Stooksberry is a freelance writer with passions for liberty,
skepticism, fatherhood, humor, and whiskey. His work has been
published in Newsweek, Independent Voter Network, Fatherly,
and other publications. When hes not writing, he splits his time
between marketing consultation, outreach work for his local
Libertarian Party affiliate, and enjoying his spare time with his
wife and son. Follow him on Facebook and Twitter.
This article was originally published on FEE.org. Read the original
article.
Posted by Thavam